The Care Fees Planning Guide 2013/14

Transcription

1 The Care Fees Planning Guide 2013/14

2 The right of Martin Bamford to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act All rights reserved. No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act Applications for the copyright holder s written permission to reproduce any part of this publication should be addressed to the publishers. This publication is provided for general consideration only and the information contained herein is not to be acted upon without professional independent financial advice. Neither Informed Choice Ltd nor any author can accept responsibility for any loss occasioned to any person no matter howsoever caused or arising as a result of or in consequence of action taken or refrained from in reliance of the contents herein. Informed Choice Ltd is authorised and regulated by the Financial Conduct Authority. First edition published in Great Britain 2013.

3 About the author Martin Bamford is managing director of Informed Choice and an experienced Chartered Financial Planner. He joined Informed Choice in 2002 after graduating from the University of Winchester with a degree in Business Administration. Martin became a director of the firm in 2004 before obtaining the prestigious Chartered Financial Planner status in Martin is proud to be a Certified Financial Planner (CFP CM ) Professional; this is the only globally recognised mark of excellence in Financial Planning. In addition to his work with elderly clients and trustees, Martin is responsible for the day to day running of Informed Choice, managing the wealth management research and all aspects of marketing. He has been recognised in several surveys by Professional Adviser magazine as one of the most influential financial advisers in Britain. Last year Martin featured in the New Model Adviser Top 100. As an established Media IFA, Martin is often quoted in the national press and he was named Best IFA Individual at the Unbiased.co.uk Media IFA of the Year Awards Away from the office, Martin is partner to primary school teacher Becky and father to Megan, Lottie and Ryan. He enjoys running, completing two marathons in 2013 and with plans to run several ultra distance races in Martin is also a keen photographer.

4 About Informed Choice Informed Choice is a leading firm of Chartered Financial Planners, working with individuals, trustees and business owners to help them to build, manage and protect their wealth. We were named as IFA of the Year at the Money Marketing Financial Services Awards 2010 and we are six times winners of the Gold Standard for Independent Financial Advice. We were named Best Retirement Adviser at the Moneyfacts Good Advice Awards We are a firm of Chartered Financial Planners. This means we have satisfied rigorous criteria relating to professional qualifications and ethical good practice. It means you can be confident that you are dealing with one of the UK s leading firms that is wholly committed to providing you with the best possible advice, service and support. To find out more about our advisory and planning services, please visit or follow us on

5 Who should read this guide? You should read this guide if You are concerned that you will be unable to afford proper care in your old age You can afford to pay for care but would rather use your capital in other ways You would prefer your capital to remain in your family when you die You have parents or family members who fall into either of the above categories You are a trustee and you need to consider the implications of the Trustee Act 2000 Our aim in writing this guide is to explain long-term care, how funding for the cost of care fees can be arranged and what that funding might cost. This guide is intended as an invitation to discuss long-term care and care fees planning in more detail. Please note that the various figures described in this guide relate to the situation in England only. The rules, allowances and rates for Wales, Scotland and Northern Ireland may differ.

6 Introduction Many of us are looking forward to a long and healthy retirement, but the statistics suggest a high probability of needing some form of long-term care in later life. Around 420,000 UK adults receive residential care and one in five people over the age of 70 receive care in the home, with 20% of these requiring continuous care. As we live for longer, more challenges arise regarding our health and care needs. Over the next fifty years, it is expected that the elderly population will increase by 41%, resulting in an additional 3.3 million people in the UK aged Cases of dementia are also on the rise. An estimated 750,000 people in the UK have already been diagnosed with dementia and this figure is expected to rise to 1.5 million by People can now reasonably expect to live at least 20 to 30 years beyond their chosen retirement date. Men and women are both living for seven years longer, on average, than they did 40 years earlier. The longer we live, the more likely it is we will need help or specialist care in our later years. Long-term care is undeniably an expensive prospect. According to the recent Dilnot report, one in ten people currently end up paying more than 100,000 in care costs during their lifetime. The cost of care in the private sector varies to a large extent; with average annual care home fees is 30,888 in South East England 1. This is only an average, with the best quality homes in this region charging as much as 60,000 a year. Local authorities are responsible for funding long-term care using a needs and means tested process. If you have eligible assets exceeding 23,250, you will have to fully fund your own long-term care costs. Those with assets under this threshold are still expected to make a contribution to care costs, until assets fall below 14, Laing & Buisson, Care of Elderly People Report 2012/13

7 When we discuss planning for long-term care with our clients, we focus on maintaining independence and dignity, and ensuring peace of mind. We also help our clients to understand how much care is likely to cost and how it might best be funded. It is very important to seek professional independent financial advice if you are concerned about planning for the cost of long-term care. A suitably qualified and experienced Chartered Financial Planner will be able to discuss all of your options, explaining the advantages and disadvantages of each approach. We hope you find reading this guide useful and that it answers most of your questions. If we can be of any assistance, please do get in touch. You can us at hello@icl-ifa.co.uk, call us on or complete the enquiry form on our website at We offer an initial meeting which is at our expense and without obligation, where we will explain our process for delivering advice and find out more about your requirements.

8 Background to Long Term Care Long-term care is usually needed when a person becomes ill or mentally impaired, or when they suffer a disability. These events cause the person to become unable to perform one or more activities of daily living, such as washing or dressing themselves. In the past, families have often met the majority of long-term care provision, but a change in traditional family dynamics and living arrangements means people often have to consider help from other sources. This often means a person who requires long-term care requires home help (domiciliary care), or long-term care in a residential home, with or without nursing care. Domiciliary care costs vary by region. As a rough guide, it can cost up to 30 an hour for assistance with personal care, quickly adding up to 1,800 or more a month for only a couple of hours a day of assistance in the home. The most expensive (and highest quality) residential care homes charge around 1,200 a week. It is easy to appreciate how quickly even substantial levels of wealth can be depleted when paying for domiciliary or residential care, with fees of this magnitude. With a rapidly ageing population, it is clear that the State can no longer provide for us throughout our entire lives. Recent proposals formed by the Dilnot Commission might go some way to easing the cost burden of long-term care, although are still likely to result in the majority of people paying for most of their care costs. The most significant reform of care and support legislation in 60 years is currently working its way through parliament, in the shape of the Care Bill. This is designed to create a modern framework for providing affordable care services against a backdrop of a rapidly ageing population and strained public finances.

9 What about State benefits? An important benefit for those with long-term care needs is Attendance Allowance. This is non-means tested and is available to all those aged 65 or over with care needs lasting for longer than six consecutive months. Care needs for this benefit are defined by help needed with essential daily tasks. Attendance Allowance is paid at two rates; a lower rate is available to people who need assistance either during the day or the night. The higher rate of Attendance Allowance is paid to those needing assistance during both day and night. Current rates of Attendance Allowance are 53 a week for the lower rate and a week for the higher rate. Registered Nursing Care Contribution If you are assessed as needing care from a Registered Nurse in a nursing home, you can receive an additional nursing care allowance known as the Registered Nursing Care Contribution. This benefit is also non-means tested and tax-free. It is currently paid in England at a rate of a week, with a high band rate of a week. NHS Continuing Care Less common is Continuing Care which is an NHS contribution to the cost of providing longterm care. This is only provided when specific conditions are met, such as the individual being unstable or unpredictable and needing constant 24 hour care.

10 Means testing Unless you make your own arrangements for the provision of long-term care, either in your home or in a residential care home, your Local Authority will apply a means test to determine whether you can afford to make a contribution to the required level of funding. If you have eligible assets (typically savings and investments, potentially also the value of your home) exceeding 23,250, you will be expected to fully fund the cost of your own care. Those with eligible assets between 14,250 and 23,250 will receive some Local Authority assistance, once your income and any tariff income has been taken into consideration. This tariff income is based on each 250 of capital between 14,250 and 23,250 generating 1 a year of income. Those with eligible assets of less than 14,250 are expected to give up all income to pay towards the cost of long-term care, except for a week which can be used to pay for any luxury items or services. This is known as the personal expenses allowance. People with assets under 14,250 will then have the cost of long-term care fully funded by the Local Authority. Eligible assets Most types of wealth are included in the means testing exercise, for the Local Authority to work out whether or not you can afford to contribute towards the cost of long-term care. Your home, cash, bank and building society accounts, National Savings, investments, stocks and shares, overseas property, trust property to which the individual is beneficially entitled, and business interests are usually included. Where assets are jointly owned by a husband and wife, or by civil partners, the Local Authority would base the means testing on each spouse or civil partner jointly owning the assets.

11 Because spouses and civil partners have a legal obligation to look after each other, a Local Authority can ask a spouse or civil partner to make a reasonable contribution to the cost of long-term care. Failure to support a spouse or civil partner can result in the Local Authority bringing proceedings in the Magistrates Court for a reasonable contribution to be determined. We often find that the risk of losing wealth due to care fees in later life is much greater than the threat of inheritance tax on death. Inheritance tax is charged at 40% on assets in excess of the nil rate band, which is currently frozen at 325,000. As a Local Authority can take into account 100% of wealth over the 23,250 threshold, the impact of long-term care becomes potentially much bigger than that of inheritance tax.

12 Property and Long Term Care The means testing described in the previous section of this guide includes the capital value of any property you own. Owning a property is very likely to result in you exceeding the 23,250 upper capital limit, often by quite some margin. In our experience with clients, property ownership is often the main reason why you will be expected by the Local Authority to fully fund your long-term care. It is worth noting that the Local Authority will look very closely at the past and present ownership of any property with which you are connected. If you have given your home to your children or placed a property asset in trust, you should expect the Local Authority to consider whether this was an act of deliberate deprivation, designed so you would qualify for their assistance. Should it be determined as deliberate deprivation, the Local Authority will take the value of your property into account even if you are no longer the legal owner. Disregarding property Property assets are not always included in the means testing process. In most cases, property will be disregarded by the Local Authority if someone else continues to live there when you require long-term care. If your spouse or civil partner, a relative aged 60 or over, or a disabled relative, or a dependent child under the age of 16 lives in the property, it will be disregarded by the Local Authority.

13 Selling property to meet care fees The Local Authority will offer a twelve week disregard period in the event that your property needs to be sold to fund care fees. This is designed to give your family the time to sell your home and, assuming your other assets are less than the upper capital limit during this twelve week period, the Local Authority will make a contribution towards your care fees. But what if your property remains unsold after this twelve week period? Most local authorities will continue to pay for care fees under what is known as a deferred payment agreement. This results in the Local Authority effectively loaning you money to cover care fees, which will have to be repaid when the property is sold or when the person needing care dies. This debt should be kept under regular review as the total owed can quickly add up. Under the terms of the deferred payment scheme, the Local Authority will only pay care fees up to an agreed limit. This might not cover the entire cost of care in your preferred residential care home. The Local Authority will also take into account all pension income received by the resident, with the exception of the personal expenses allowance mentioned earlier in this guide.

14 Funding care fees with your property Selling your property is not the only option for funding the payment of long-term care. It might be possible to fund this while still owning your home. Equity release schemes are important to consider. These allow capital to be released from the value of the property and ownership of the property to be retained during your lifetime. You should seek professional independent financial advice in conjunction with legal advice before using equity release schemes. This will ensure you and your family understand all of the risk factors involved. Another option for funding long-term care without selling your property is to rent your home. The rental income can then help to fund care fees. When considering this option, you will also have to consider the costs of maintaining your property, paying a managing agent and covering any void periods when the property is not let. There are some other schemes available which will allow you to keep ownership of your property but release cash or income to pay for long-term care. These can involve borrowing against the value of your home to buy an immediate care annuity. Always seek professional advice from an independent financial adviser before embarking on any of these schemes.

15 Deliberate asset deprivation If you give away assets or income, or sell them at a level below their true market value, you should expect the Local Authority to investigate whether or not this was done so you might qualify for their support. Local Authorities will attempt to recover assets given away or sold where this is thought to have taken place. If you transfer assets within six months of needing long-term, the Local Authority has statutory powers to recover them directly from the recipient. Alternatively, they can count them as notional capital and treat the assets as if they had never been given away. Where assets are given away more than six months before needing long-term care, they can still be counted as notional capital by the Local Authority. This will depend on the motivation of the person making the gift or selling the assets at below market value. If it can be demonstrated that the gift was made for genuine planning reasons, for example inheritance tax planning, it should be disregarded.

16 Funding long-term care It is possible to make provision for the cost of long-term care in a number of ways. This is designed to make sure that care can be provided without loss of independence or a reduced standard of living in later life; factors which cannot be assured when relying on Local Authority funded care. If you are planning in advance, it has been possible in the past to take out insurance which is paid for with regular premiums or a single cash payment. While often the cheapest approach, if a claim is not made then no benefits are received from the policy, a bit like a home contents insurance policy. Another option is to make a lump sum investment which can provide capital or income towards care costs in the future. There is a risk with this approach that the lifetime cost of long-term care will far exceed the amount invested, so money might not be available to fully fund care fees in the future. If you are already receiving long-term care, or about to need care, then you can purchase an immediate need care fees annuity. These exchange a cash lump sum for a regular income for the rest of your life. The amount of income selected is designed to cover the shortfall between your current income and expenditure. Buying an immediate care annuity is typically more expensive than pre-funding long-term care. However, it will allow the person receiving care to ring-fence these costs and ensure there is some wealth left over to pay for luxuries or leave as an inheritance for children or grandchildren. With some immediate care annuities, it is possible to add a benefit which allows some of the capital outlay to be repaid to the estate should the person needing care die earlier than expected.

17 Pre-funded long term care plans Important note: This type of product is not currently available to new customers, although it might become available again in the future. These long-term care plans would pay the agreed benefit on the policyholder being unable to carry out certain activities of daily living. The benefit could be paid directly to a nursing home or residential home, or to the plan holder to pay for a carer in their own home. The activities of daily living (ADL s) include: Washing being able to keep oneself clean Dressing being able to dress oneself Feeding being able to eat food that has been prepared Transferring one s ability to transfer from a bed to a chair and vice versa Mobility being able to move freely around ones home Continence the ability to maintain personal hygiene Mental impairment such as Alzheimer s Payment of benefit could be triggered on the failure to be able to meet one, two or three of the above items. The failure of fewer ADL s would increase the cost of the long term care plan, because the benefits would become payable sooner and potentially for longer. Benefit for Assistive Devices is also paid on the failure of an agreed number of ADL s. Apart from the monetary benefits, the care plan would also give the care recipient and their family access to a care support service that would provide support and guidance through all of the issues surrounding their long term care needs.

18 Immediate need care fees annuity If income is needed immediately to fund care fees, because a stay in residential care is imminent or the person is already in receipt of long-term care, one action to consider is buying an immediate need care fees annuity to cover those costs. Benefits from these plans are usually paid directly to the residential care home, which allows them to be paid tax-free. You can choose for benefits to escalate each year, to keep pace with care fees inflation, and this escalation can be set to coincide with the annual review date of your care provider. The cost of an immediate need care fees annuity will depend on the health of the care recipient and their life expectancy, along with the level of benefit required. For a small additional cost, it is possible to add a death benefit to these plans, which ensures there is some return of capital should the person needing care die in the early years of the plan. One advantage of using these products is that they effectively ring-fence the cost of care, preserving your remaining wealth to pay for luxury expenditure or provide an inheritance to future generations. If you live for longer than expected, the benefits from this type of plan will continue to be paid for the rest of your life, so you never need to worry about running out of income or being forced to move homes in later life. It is important to consider immediate need care fees annuities alongside other options for funding care fees.

19 The cost of long term care provision The cost of a long term care plan is dependent on a number of factors. These include: Your age Your state of health at the time the policy starts The amount of long term care provision required How soon the benefits need to be paid Whether level or escalating benefits are selected The costs of these plans vary between the different providers and the only way to obtain an accurate quotation is to go through the underwriting process. Whilst indicative quotations are available from the providers of immediate care plans, they tend to differ massively when compared to the final fully underwritten premium. Do speak to us to start the underwriting process and determine the actual cost of an immediate care plan based on your personal circumstances and objectives.

20 Some other options to consider Care fees plans are not the only way to meet the cost of care fees. When working with clients in this advice area we always consider the full range of options and these will include using savings to pay for care fees or investing capital with the aim of generating sufficient income to pay the fees. Savings Using existing savings to pay for care fees is the simplest and lowest risk option to consider outside of an immediate care plan. The main risk associated with this option is that the money will eventually run out. This can result in the person requiring care having to move to a poorer quality care home in the future. In this current low-interest rate environment the return from cash savings is potentially unattractive for many and lower interest rates accelerate the erosion of capital. As part of the care fees planning reports we construct for clients, we have built a model to illustrate how long cash savings are likely to last and this can then be discussed in the context of likely life expectancy and what would happen if funds ran out. Investments Investing capital to generate income to pay care fees involves exposing money to a higher degree of risk in the hope of achieving greater returns and making the capital last for longer. A popular investment option for care fees planning is the insurance Investment Bond which enables tax-deferred capital withdrawals to be made instead of taxable income. What is important is for all of the options to be considered in light of the individual circumstances and objectives. No two people are the same and therefore no single care fees planning solution is always suitable.

21 Lasting power of attorney We always recommend considering a Lasting Power of Attorney as an important first step when thinking about care fees planning. These were first introduced in October 2007, as a replacement for the Enduring Power of Attorney (EPA). There are two different types of LPA the Health & Welfare LPA and the Property & Financial Affairs LPA. Both are important, but it is the Property & Financial Affairs LPA which enables your nominated attorney to make decisions on your behalf regarding financial matters. A Health & Welfare LPA allows one or more chosen people to make important decisions about factors including your daily routine, medical care, moving into a care home or lifesustaining treatment. The Property & Financial Affairs LPA lets you choose one or more people to pay your bills, collect state benefits or sell your home. It can be used as soon as it has been registered, with your permission. Making a Lasting Power of Attorney involves choosing your attorney, filling in forms to appoint them as an attorney, and registering your LPA with the Office of the Public Guardian. This final part of the process can take up to eight weeks to complete. A Lasting Power of Attorney has a much wider scope than the old Enduring Power of Attorney. Whilst it is an important legal measure to consider, it can have serious consequences. It is possible to create your own Lasting Power of Attorney, but we believe you should seek professional legal advice from a competent solicitor. Do let us know if you would like us to introduce you to one of our professional connections who will be able to assist you.

22 Summary We hope you have found this guide helpful. If you are considering the financial planning needs for somebody close to you entering care, we would love to hear from you. Please call Martin on or him at with any questions, or to arrange a meeting. We offer an initial meeting which is at our expense and without any obligation, either here at our offices in Cranleigh or at your home. In addition to our work with clients throughout the UK, we also work closely with other IFA firms to provide specialist care fees planning advice to their clients and with solicitors who may have clients with care fees planning requirements.